DCIT, Bangalore V. M/s. Ocwen Financial Solutions Pvt. Ltd, Bangalore

ITA 1170/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5557 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 25-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: APARNA AMMANNAYA
• Section: 143(3); 10B

Judgement Text

PAGE 1 OF 7 ITA NO.1170/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NO.1170/BANG/2010 (ASSESSMENT YEAR 2004-05) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE. - APPELLANT VS M/S OCWEN FINANCIAL SOLUTIONS PVT. LTD., 4 TH , 5 TH AND 6 TH FLOOR, SALARPURIA AREA, 24, HOSUR ROAD, BANGALORE-30. - RESPONDENT APPELLANT BY : SHRI ETWA MUNDA, CIT-III RESPONDENT BY : MS APARNA AMMANNAYA, CA ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE DEPARTMENT IS DIREC TED AGAINST THE ORDER OF THE CIT(A)-IV, BANGALORE DATED 11/08/2010. THE ASST. YEAR CONCERNED IS 2004-05. 2. THE SOLITARY ISSUE INVOLVED IN THIS CASE IS WHET HER THE CIT(A) IS JUSTIFIED IN DIRECTING THE AO TO EXCLUDE TELECOMMUNICATION CHARGES, LEASE LINE CHARGES AMOUN TING TO RS.3,20,05,774/- AND TRAVELLING EXPENSES OF RS.34,1 4,652/- PAGE 2 OF 7 ITA NO.1170/BANG/2010 2 INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 10A OF THE ACT. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE DEVELOPMENT OF COMPUTER SOFTWARE AND DATE PROCESSIN G. RETURN OF INCOME WAS FILED ON 30.10.2004 DECLARING AN INCOME OF RS.1,10,950. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10A OF THE A CT. WHILE COMPUTING DEDUCTION, THE ASSESSEE INCLUDED THE TELE COMMUNICATION EXPENSES AND TRAVELLING EXPENSES INCURRED IN FOREIG N CURRENCY AS PART OF THE EXPORT TURNOVER. THE ASSESSMENT WAS TA KEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2) OF THE ACT AND THE AO RE- COMPUTED THE DEDUCTION U/S 10A OF THE ACT. THE AO EXCLUDED TELECOMMUNICATION CHARGES AND 20% OF THE TRAVELLING EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS.3,20,05 ,774/- AND RS.34,14,652/- RESPECTIVELY FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. IN DOING S O, THE AO REFERRED TO EXPLANATION 2, CLAUSE (IV) TO SECTION 1 0A OF THE ACT. 4. AGGRIEVED BY THE EXCLUSION OF TELECOMMUNICATION CHARGES AND 20% OF THE TRAVELLING EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER WHILE COMPUTING DE DUCTION U/S 10A OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. PAGE 3 OF 7 ITA NO.1170/BANG/2010 3 5. BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS CON TENDED THAT THE AO HAS ERRED IN EXCLUDING THE ABOVE SAID E XPENSES FROM THE EXPORT TURNOVER. ALTERNATIVELY IT WAS CONTENDED THAT IF THE ABOVE SAID EXPENSES ARE EXCLUDED FROM THE EXPORT TU RNOVER, THE SAME ARE TO BE REDUCED FROM THE TOTAL TURNOVER ALSO WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 6. THE ALTERNATIVE SUBMISSION OF THE ASSESSEE WAS ACCEPTED BY THE CIT(A). THE CIT(A) FOLLOWED THE ORD ER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SAK SO FT LTD. (313 ITR 353) (AT) (CHENNAI). 7. THE REVENUE BEING AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTHORITY IS IN APPEAL BEFORE US. 8. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. 9. THE LEARNED AR ON THE OTHER HAND SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEMEN T OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT V GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 AND THE ORDER OF THE SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR 353. 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GEMPLUS JEWELLERY INDIA LTD. (SUPRA), IN IDENTICAL CIRCUMSTANCES, HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF T HE TOTAL PAGE 4 OF 7 ITA NO.1170/BANG/2010 4 TURNOVER, IF AN ITEM IS EXCLUDED FROM THE EXPORT TU RNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER TO M AINTAIN PARITY BETWEEN NUMERATOR AND DENOMINATOR WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELEVANT FINDING OF THE HONBL E MUMBAI HIGH COURT READS AS FOLLOWS:- THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONSTITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN PAGE 5 OF 7 ITA NO.1170/BANG/2010 5 DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVER, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAVE ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRIPTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (INDIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON PAGE 6 OF 7 ITA NO.1170/BANG/2010 6 9.1 IN THE CASE OF SAK SOFT LTD. (SUPRA), THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTW ARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETIN G THE ASSESSMENT U/S 143(3) OF THE ACT, THE AO REDUCED TH E EXPENDITURE INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA, FROM THE EXPORT TURNOVER WITHOUT COR RESPONDING REDUCTION FROM TOTAL TURNOVER, THEREBY REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE ACT. 9.2 IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENCH HELD AS UNDER:- FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEALS FILED BY THE DEPARTMENT ARE THUS DISMISSED. ALTHOUGH THE ORDER OF SPECIAL BENCH IS IN THE CONTE XT OF SECTION 10B OF THE ACT, THE RATIO LAID DOWN IN THE ABOVE DE CISION APPLIES TO SECTION 10A OF THE ACT AS WELL, AS THE PROVISIONS O F SECTIONS 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. MOR E PARTICULARLY, BOTH THE SECTIONS DEFINE ONLY EXPORT TURNOVER BUT NO T TOTAL PAGE 7 OF 7 ITA NO.1170/BANG/2010 7 TURNOVER AND SUB-SECTION (4) OF BOTH THE SECTIONS P RESCRIBE AN IDENTICAL FORMULA FOR COMPUTING THE EXPORT PROFITS. 9.3 IN THE LIGHT OF THE ABOVE REASONING, WE UPHOLD THE ORDERS OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE T HE ABOVE MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED ON FRIDAY, THE 17 TH DAY OF JUNE, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/15/6. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.